When you apply for a Monie interest account, we ask you to nominate a USD current account held in your name. This is your linked account.
You can add USD to your Monie account from your linked account. There is no limit on how much you can deposit in your Monie account. However, there may be limits on transfers based on which payment method you use (e.g. ACH or Wire). The absolute minimum transfer is 1 USD.
To send money from your linked account, you can just make a transfer the way you usually do.
Your USD deposit generally takes between 1 and 2 working days but may take up to 5 working days to arrive in your Monie interest account.
In order to be able to lend funds in digital asset markets, we need to convert your USD deposit also into a digital asset - USDC.
USDC (USD Coin) or digital dollar is a stablecoin (a type of digital asset) issued by Centre, a consortium run by two of the largest regulated and licensed blockchain financial institutions - Circle and Coinbase.
The interesting thing about USDC is that it is pegged one to one to the US Dollar. This means that for every USDC issued, one actual USD must be deposited. Consequently, Centre maintains full reserves of USD for all USDC in circulation. So USDC is really nothing other than a digital dollar!
And to ensure that this principle is upheld, Centre is required to regularly report on their USD reserve holdings and is audited by Grant Thornton LLP, one of the largest audit firms in the world.
Many digital assets are highly volatile in their pricing, making it difficult for businesses to plan their capital needs. But a digital dollar brings stability into the digital asset markets it serves.
As of December 2020, 3 billion USDC are in circulation, and thanks to their useful proposition, more and more are being issued.
What all this means for you is that for every USD you deposit, we automatically exchange it to USDC, one for one. And if you want to withdraw funds from your Monie interest account, USDC is automatically converted back into USD for you on the same one to one principle and transferred to your linked account.
Once customers’ USD have been converted into USDC, all funds in Monie interest accounts get aggregated into a ‘fund pool’ just like in a traditional bank.
So if you deposited USD 10,000 and other customers deposited USD 90,000 into their various Monie accounts, the total funds pool would be USD 100,000 or USDC 100,000.
In order to generate a yield and pay you interest on your deposits, we lend some of the pooled USDC funds to borrowers in digital asset markets where demand for digital dollars is high.
Monie lends funds only to trusted institutional trading firms and hedge funds (most of which are regulated by government institutions such as the SEC). They require USDC for various activities such as hedging, speculation, institutional market-making and working capital needs.
As digital assets are an emerging sector of the economy, inefficiencies in the financial infrastructure are commonplace. And due to a lack of credit from the traditional banking industry to support trading activities and working capital needs of digital asset businesses, demand for a stable currency such as USDC is high.
Monie can generate a yield for our customers by exploiting the inefficiencies in the current market, whilst at the same time supplying institutions with the USDC they need for their business activities.
Bear in mind that as this market matures, inefficiencies will become smaller, which will likely push down potential yields. Consequently, interest rates are subject to change, and depending on the underlying market conditions, they may go up or down.
Since Monie interest accounts are currently not FDIC insured, we need to make sure that all our customer funds are safe. We do this by issuing loans to borrowers typically on collateralised terms - and mainly on over-collateralised terms - based on the counter-party’s risk rating.
This means that for every USDC we lend, the over-collateralised borrower must hand over another asset worth at least 1.5 times the amount of USDC they borrow. For sake of illustration, let’s call this asset ‘asset B’.
Once a loan is issued, there are three possible scenarios which could play out:
The borrower pays back the loan plus the agreed interest before the price of the collateral asset has a chance to decrease
In this scenario, everything worked out as expected, the capital is restored to the funds pool along with the interest earned, and the borrower receives their total collateral back.
The value of the collateral asset falls to less than 1.5 times the value of USDC lent before the borrower repays the loan
Whenever the value of the collateral falls below 1.5 times the value of the loan, Monie will liquidate the collateral or ask the borrower to hand over additional collateral so that the total value of the collateral remains at least 1.5 times.
Say the loan taken out is USDC 10,000. The required collateral would then be 15,000 of asset B assuming that asset B is also worth USD 1 (1.5 times the loan value). But if the price of asset B drops below USD 1 before the borrower has repaid the loan, the collateral would fall below the required 1.5 times. At this point, Monie will either sell all units of asset B straight away or ask the borrower to put down more collateral to ensure customer funds do not fall below at least what was deposited.
The borrower does not repay the loan
In this scenario, the collateral provided by the borrower is eventually liquidated by Monie and customer funds are restored.
So should the borrower for any reason be unable to serve the loan or the collateral drop below the minimum amount, Monie can take the collateral asset, exchange it for USDC, and restore funds back to our customers. In any case, the counter-party risk is minimised.
Over-collateralised loans are common practice. For example, if you take out a mortgage, the bank will lay claim to the entire property, even though your mortgage value may be lower than the total value of the property.
After an agreed period of time, the loan is eventually repaid by the borrower along with the interest (as in scenario 1). The principal capital used for the loan is returned to the funds pool along with the interest generated from the loan.
On the first calendar day of every month, we deposit the interest earned into your Monie account as per the applicable interest rates. The interest compounds in your account every month.
For example, if you deposited 10,000 USD on 1 January, you will have 11,048 USD sitting in your Monie interest account after twelve months assuming you did not make any further transfers. The total interest you will have earned is 1,048 USD.
You can withdraw USD from your Monie interest account at any time.
Withdrawal requests are usually processed within 5 working days.